Saudis more intent on downstream assets than oil prices, speaker says

Saudi Arabia’s national oil company appears more intent on continuing to secure refining and petrochemical assets worldwide for its crude oil than on cutting production to stabilize or increase oil prices, observed Jean-Francois Seznec, a Middle East studies adjunct professor at Johns Hopkins University’s School of Advanced International Studies (SAIS).

“There’s a strategy here to make sure it has a base of users for the crude it produces,” he said during a Sept. 28 discussion at SAIS after citing Saudi Aramco’s recent and pending downstream acquisitions and new projects in the US, Yemen, Japan, South Korea, and elsewhere. “It looks as if 60-70% of its production will go to itself so it can depend less on crude markets and [the Organization of Petroleum Exporting Countries].”

Seznec spoke soon after OPEC ministers at a special meeting in Algiers agreed to consider trimming member countries’ aggregate production by as much as 740,000 b/d in response to global crude prices falling by more than half in the last two years (OGJ Online, Sept. 29, 2016).

“As usual with OPEC production agreements, the devil will be in the details,” Seznec said. “It’s not clear if Russia—as the world’s largest producer at 11.4 million b/d—had a role.” Saudi Arabia has increased its production by 400,000 b/d since January to 10.6 million b/d, “which made a lot of people unhappy,” he said.

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The kingdom’s new energy minister, Khalid Al-Falih, wields more influence than his predecessor because he also controls the electricity and other ministries, Seznec said. He noted that a Saudi prince now controls an oversight committee at Aramco, but added, “Not one Saudi Aramco board member or senior manager is a royal family member. The engineers who control the oil there also are starting to control the general economy.”

He said he expects Aramco to have only limited success in going public because the country’s reserves and inventories are so opaque. “In terms of day-to-day operations, it probably is more transparent than ExxonMobil. It’s less so when it comes to ownership and who has access to the money,” Seznec said. “Other state oil companies have to turn their revenue over to finance ministries and then ask for some of it back for their operations. Saudi Aramco keeps its money and has complete access.”